Former Fed Gov.: ECB Moves Are Courageous

1/15/2015 11:20AM

Jeremy Stein, former Fed Governor, sees the likely upcoming moves of the ECB into Quantitative Easing as a positive and courageous step to help shore up the European economy. He spoke with WSJ's Jon Hilsenrath.

This transcript has been automatically generated and may not be 100% accurate.

European Central Bank now is possibly a ... week or so away from launching its own QE programme that ... the thing that's going to hell ... I think so I think one wants to be Obel careful how long can you share price I think they're doing absolutely the right thing so ... no this is that a difficult and courageous thing I give all credit to to to Mr groggy and its Kyle stuff ... they've got a serious issue with your flirting with deflation ... and I think they've got a breach of beer what they can bring to bear up ... in doing that to to deal with it ... um ... descent I think is a little bit of a risk that ... you know ... so much attention has been given to this and so much ... in other circuits so much focus on it ... aam ... I wouldn't overstate what I think it matters is the right thing and they've gotten into what I would like to see them do it ... you know on the relatively aggressive side ... except the can ... I think you can help ... if you think about it ... hydraulic leak ... the amount of traction you might expect them to get out of their Kiwi ... I don't see this enormous ... um ... when putting this one we thought about in the US ... we were very focused ... if you ask us to kind of ... tell me yes me to tell a story tellers QE three for us ... we are very focused on the asset side of that now she ... say ... in order to buy this amount of Treasurys and its push down Treasury yields by twenty basis points ... to push down in the US killed thirty basis points and here's how it's gonna work ... their starting position twenty ... years here ... in OBP future due to ... that and that's you know ... that that the sort of size weighted ... average interest rate your ... yield and negative somewhere negative in some places the places where they can do a lot of volume Germany France the very very well ... just hard to imagine even be implemented ... as well they can implement the analysts will work ... that's ... when the bus ... it's a it's a very good question and it's interesting that they have ... articulated in what I ... to me seems like a quite different way numbers ... when we spoke about it we spoke about the assets ... at some level when people sit well ... in all these reserves are going to be inflationary ... this is nothing to see you nothing happening on the liability side ... focus on the assets ... it seems to me that in the ECB spray meaning you see this a little bit in Japan as well ... when they focus their talking about the departed size the balance of organic growth balance sheet by trillion euro ... something that ... when you get a bye well as a little bit the feeling of will by twenty ten ... we were determined to expand the balance sheet but this much in some sense ... that this much more money in the system ... and the wool fiber we can know what's with Seville this I think ... there's a little bit more about a play to the idea ... that's ... increased balance sheet is a little bit per se inflationary ... and then that bears down on the carts ... so mechanism they have is ... depreciating it hurts ... exactly why the currency depreciates ... given him normally we think currency depreciates when you millet re goes to ... to the real treats kind of a little stock ... so I think there's a bit of their play market psychology ... it feels to me a little bit so what what what you make of ... that we heard a lot of talk last year but the risk of cars works ... wake up this morning in the Swiss National Bank is having a dramatic actions ... I'm on its currency ... is this it is this a problem is is something that to ... can they could become a challenge for policymakers next year competitive devaluations it seems like the only channel that the ECB has worked where I degree I think it is it's a ... very significant ... channel for them I don't miss I don't see it as a currency war in the sense that ... aam ... at some level precisely because the US is strong in Europe this week ... it's a realignment that maybe it's not necessarily as heroes don't think this is Europe's gay ... members ... if the euro it stays a little bit stays where it is or even becomes a little bit further ... that makes that benefits euro ... us can tolerate that well in fact probably the U S benefits over the long run ... the European economy ... and what ... I do think um I mean ... the mechanisms matter ... so ... if the euro has weakened by ... ECB balance sheet expansion ... of high net worth having now that seems to me is fair game no police can get to ... um shouldn't get too upset ... if this doesn't we don't know another alternative that you can imagine the ECB considering ... and Mrs later twists that this was the ... you can imagine them instead of buying sovereign bonds in spite of their currencies ... in an attempt to weaken parts ... at some level they would be trying to do the same thing that strikes me as I can ... see them actually stick so well ... there are enough times in ... the rain I don't know how to handicap I'm ... not the right person to really in the politics of it ... and use it as an economist ... um ... you know it is looking for things to do ... what something that's likely to ... work in some sense to ... depreciate your currency to create some inflation ... if you had the wheel ... to basically create a lot in a row ... by a lot of dollars ... that would ... he read the effects of less person here and will come back to the cus you spend a lot of time focusing on market responses to central bank ... policy ... are we use the ECB potentially setting the market up for disappointment they've been talking so long ... that ... watching a program ... it seems that is the only way they're going to get a response to this points to do something very big and it's hard to see the political will behind some day ... a week ... in moving towards shake up in a new shakeout markets in response to what we see a dove ... I know I wanna try to predict what what the market response will be but I think that's that's exactly the right question it's one of the two before which is ... absolutely need to do this and it's the right thing ... but ... there's a little bit the risk that in some sense ... it's become seen as the answer ... and there's ... no way of some of what can be quite the answer that that that people looking to to think there's some risk now ... um ... one particular place ... right I think is ... very gentle question is ... if they go and announce this ... there's the issue of the server technical issue of ... whether the bond buying will be done at some level by the ECB ... for what it will be pushed down to the national central banks ... to this and technical stuff associated with it I think the optics are actually quite ... worked ... aam ... say all this is ultimately ultimately in the long run ... oh what a question of political will ... aam ... site to worry that if they come out something that's up ... to me that the expected size ... but it's really got a bit of an element of were alienating this to the national central